Several years ago I inherited about $70K in E bonds -- Individual bonds stop earning interest starting in 2013 and finish in 2024. The interest rates are OK compared to current Money Market and CDs and until recently they've been a little pillow in the background of my nestegg.

The possibility of default (surprise!) has made me nervous. Obviously, I don't want to cash in the bonds and take the tax hit but I wonder if I'm being foolish or Foolish.

I also have about $20,000 in I bonds purchased about 6-8 years ago.

So I'm sitting tight and hoping for a modicum of sense from Washington. Opinion? Please...

The possibility of default (surprise!) has made me nervous. Obviously, I don't want to cash in the bonds and take the tax hit but I wonder if I'm being foolish or Foolish.

I also have about $20,000 in I bonds purchased about 6-8 years ago.

So I'm sitting tight and hoping for a modicum of sense from Washington. Opinion? Please...

There is no way that the US government will default on it's current debt. There is plenty of money coming in to pay debt obligations. More likely non essential government employees will be laid off and a few billion in foreign aid payments will not go out.

Maybe the president and members of congress will not get their checks.

I'm surprised you only think the interest rates are okay since they are 4% or better for EE/E bonds. I would think about how much to have to cash and when the interest will stop compared to what you estimate your tax liability to be in those years. This is a financial opinion, not a political one.

I'm surprised you only think the interest rates are okay since they are 4% or better for EE/E bonds. I would think about how much to have to cash and when the interest will stop compared to what you estimate your tax liability to be in those years. This is a financial opinion, not a political one.

They were purchased in the 1980s and will stop earning interest at various dates between 2013 and 2024. As they stop earning interest I'll cash them.

I like to leave things alone whenever possible. My inclination is to ride out the current chaos in Washington but wanted to find out if that was thought to be wildly lunatic.

Several years ago I inherited about $70K in E bonds -- Individual bonds stop earning interest starting in 2013 and finish in 2024. The interest rates are OK compared to current Money Market and CDs and until recently they've been a little pillow in the background of my nestegg.

The possibility of default (surprise!) has made me nervous. Obviously, I don't want to cash in the bonds and take the tax hit but I wonder if I'm being foolish or Foolish.

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Since most of the US debt is owned by large institutions or foreign governments, I think it's likely to paid ahead of other obligations. If you're getting a Social Security check, I'd be more worried about that.

If you're getting a Social Security check, I'd be more worried about that.

This is utter garbage fear mongering. So long as Social Security payments continue to come out of the paychecks of those of us who work, the Social Security checks will continue to go out for those that no longer have to work. Longer term, that will no longer be the case without reform.

I believe both your E Bonds and Social Security are safe but I understand your concerns. Possible gov't default is very real and very dangerous. What's frightening is that a significant number of members of Congress don't think it's important. Ronald Reagan thought it was but they've thrown him out of the party as a too liberal.

How serious is our situation? IMO, the fall of 2008 was a 10 on the danger of world ecomoic collapse scale. US default is a 7. But the impact on the reputation of the US will be much worse than that. Lie to me once and I will never trust you again. Same is true for a nation that default's on its obligations.

This was the wrong issue to pick a political fight over. The debt ceiling should be raised in a clean vote. We need to deal with deficit issues, no question about it, but don't tie the two together in a world where economies are still reeling from 2008.

<<If you're getting a Social Security check, I'd be more worried about that.>>

This is utter garbage fear mongering. So long as Social Security payments continue to come out of the paychecks of those of us who work, the Social Security checks will continue to go out for those that no longer have to work. Longer term, that will no longer be the case without reform.

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We passed the point where weekly FICA payments from current workers were enough to cover Social Security checks mailed out last year. In order to tap the Social Security trust fund to make up the difference, the Govt has to issue more debt.

Not to change to subject but just when did this "Statutory debt limit" thing come into existence?

The "aggregate debt limit" started in 1917. Prior to that, Congress had to approve each individual debt offering by the Treasury. With the debt limit, the Treasury is allowed to issue debt without further Congressional approval up to the limit.

The debt ceiling should be raised in a clean vote. We need to deal with deficit issues, no question about it, but don't tie the two together in a world where economies are still reeling from 2008.

The time to deal with cancer via chemotherapy and radiation therapy is while its still localized. Unfortunately our politicians have waited till it has metastasized.

Don't like that analogy? Pick another. Raising the debt ceiling for politicians is like give crack/alcohol to an addict.

IMHO, the debt problem is a manufactured crisis (an opportunity to not be wasted). We take in around $200 billion/month, our debt obligations are around $20 billion/month. We can easily service our debt. My solution, pay debts first (then no crisis, no downgrades, etc.), then military, then social security (we have the ability to pay all those right now). Then everything else gets an equal percentage cut until budget balanced.

IMHO, the debt problem is a manufactured crisis (an opportunity to not be wasted). We take in around $200 billion/month, our debt obligations are around $20 billion/month. We can easily service our debt. My solution, pay debts first (then no crisis, no downgrades, etc.), then military, then social security (we have the ability to pay all those right now). Then everything else gets an equal percentage cut until budget balanced.

That would still result in a debt downgrade. Would you buy Exxon bonds (another AAA-rated credit) if the company had suddenly stopped paying it's suppliers, even though it kept paying pensions and the interest to current bondholders?

IMHO, the debt problem is a manufactured crisis (an opportunity to not be wasted). We take in around $200 billion/month, our debt obligations are around $20 billion/month. We can easily service our debt. My solution, pay debts first (then no crisis, no downgrades, etc.), then military, then social security (we have the ability to pay all those right now). Then everything else gets an equal percentage cut until budget balanced.

Interest, Department of Defense, Medicare and Social Security outlays equal $198B a month. That leaves $2B a month of other expenses.

In Fiscal 2010, we brought in 2.2Billion, and spend $3.1billion, for a shortfall of $1.1 billion. Income taxes (corporate and personal) totaled $1.09 billion. In other words, in order for a tax increase to solve this problem, income taxes would have to double across the board. Even if you raised taxes on people making over $200,000 a year by 155%, taxes on everyone else would still need to increase 40%.

I'd like to see a drastic reexamination of all federal spending, far more exhaustive than the examination we got a few years ago that found small change in savings.

I'd also like to see another revamp of the tax code, 1986 style (without the devestating real estate crash - lets think any changes through first). Simplify it greatly - one $5,000 exemption per person is tax free (family of 4 gets $20,000 tax free) and then progressive rates from there. Vastly reduce the credits and deductions. Give a modest deduction for interest dividends to encourage savings - $1,000 per person. Perhaps keep a lower rate for capital gains, but at the same time, maybe cap it ($50,000 a year?? something low enough that retirees selling stock wouldn't meet the cap)

Its time we stop considering Social Security and Medicare a separate government item - bring it onto the books, don't worry about a "trust fund". We don't worry about a "NASA" trust fund because its simply another government program. SS and Medicare should be the same. Get rid of the payroll deductions and roll them into the regular rate.

Simplify retirement accounts. Standardize the amount you can save - let each person save a total of $16,500 (or whatever the 401K max is) per year. If I want to do $8250 401K and $8250 IRA, that would be fine.

You know that in bankruptcy proceedings there is a heirarchy of creditors that get paid in full before the next level of creditors get reimbursed (if at all). Many GM bondholders (at the top of the food chain) were not reimbursed porperly. They were paid cents on the dollar instead of fully reimbursed.

Plus, if I understood what I read correctly, individuals can take precedent over groups (especially government entities). That didn't happen either.

JLC: "You being a lawyer know the details way better than I, but here goes."

I do not practice in bankruptcy court.

"You know that in bankruptcy proceedings there is a heirarchy of creditors that get paid in full before the next level of creditors get reimbursed (if at all). Many GM bondholders (at the top of the food chain) were not reimbursed porperly. They were paid cents on the dollar instead of fully reimbursed."

Unsecured debtholders do not necessarily get paid in full, though you are correct that those down the hierarchy generally receive nothing before those before them are paid in full.

"The plan, which was worked out between the struggling company and the Obama administration, means U.S. taxpayers will end up owning 60% of the "new GM," with other stakes held by Canadian governments, bondholders and the United Auto Workers union.

Holders of $27 billion in GM (GMGMQ) bonds get stock in the reorganized company, as will a union-controlled trust fund that will take stock rather than the $20 billion in cash it had been owed to pay future retiree health care costs. Those 650,000 retirees will have their coverage reduced."

"Bondholders with slightly more than 50 percent of G.M.’s $27.2 billion in bond debt agreed to support the plan by the deadline of 5 p.m., according to people briefed on the matter. Among the backers was a committee of large investors holding about 20 percent of G.M.’s outstanding bonds."

I'd also like to see another revamp of the tax code, 1986 style (without the devestating real estate crash - lets think any changes through first). Simplify it greatly - one $5,000 exemption per person is tax free (family of 4 gets $20,000 tax free) and then progressive rates from there. Vastly reduce the credits and deductions. Give a modest deduction for interest dividends to encourage savings - $1,000 per person. Perhaps keep a lower rate for capital gains, but at the same time, maybe cap it ($50,000 a year?? something low enough that retirees selling stock wouldn't meet the cap)

I'm a proponent of the Fair Tax because it eliminates tax returns and puts the power to pay a tax or not to pay a tax in the hands of the consumer. But Washington will never go for it. Maybe a compromise is to tax those evil corporations and abolish all income taxes for individuals. Then the Democrats can continue with their rhetoric while the consumers still basically get to decide whether they pay taxes or not since the corporate taxes are passed onto us anyway. Just a thought...

<<<I'd also like to see another revamp of the tax code, 1986 style (without the devestating real estate crash - lets think any changes through first). Simplify it greatly - one $5,000 exemption per person is tax free (family of 4 gets $20,000 tax free) and then progressive rates from there. Vastly reduce the credits and deductions. Give a modest deduction for interest dividends to encourage savings - $1,000 per person. Perhaps keep a lower rate for capital gains, but at the same time, maybe cap it ($50,000 a year?? something low enough that retirees selling stock wouldn't meet the cap)>>>

"I'm a proponent of the Fair Tax because it eliminates tax returns and puts the power to pay a tax or not to pay a tax in the hands of the consumer. But Washington will never go for it. Maybe a compromise is to tax those evil corporations and abolish all income taxes for individuals. Then the Democrats can continue with their rhetoric while the consumers still basically get to decide whether they pay taxes or not since the corporate taxes are passed onto us anyway. Just a thought..."

That is a nice way to devalue Roth IRAs and I am sure a 30% (29.87%, IIRC) sales tax will do wonders for the economy.

I'm a proponent of the Fair Tax because it eliminates tax returns and puts the power to pay a tax or not to pay a tax in the hands of the consumer. But Washington will never go for it. Maybe a compromise is to tax those evil corporations and abolish all income taxes for individuals. Then the Democrats can continue with their rhetoric while the consumers still basically get to decide whether they pay taxes or not since the corporate taxes are passed onto us anyway. Just a thought...

I actually wouldn't mind seeing a mix of income and a national sales tax. As long as its fairly implemented (which is going to be up for debate).

I'd like to see the states get their act together and come up with a standardized fix for the internet tax issue as well.

Perhaps you missed the part where I said you get to keep EVERYTHING you make. I believe it will greatly improve the economy...your Roth will be fine. It's all relative...

Maybe you don't fully understand the tax implications. Since Roths are set up to use for spending when you aren't making ANYTHING, keeping EVERYTHING you make is rather pointless. With all spending having a 'fair' tax added, Roths will immediately have less purchasing power than they now do, even though the Roth contributions have already had income taxes paid on them, with the promise of not having to pay any federal taxes on future spending funded by them. That makes the 'fair' tax neither 'fine' nor 'relative' with respect to Roth accounts.

<<<That is a nice way to devalue Roth IRAs and I am sure a 30% (29.87%, IIRC) sales tax will do wonders for the economy.>>>

"Perhaps you missed the part where I said you get to keep EVERYTHING you make. I believe it will greatly improve the economy...your Roth will be fine. It's all relative..."

I have done plenty of reading about the "Fair Tax".

IMNSHO, the propenents get off to a bad start talking about a 23% all inclusive rate" when no other sales tax is discussed or calculated in such manner. When the starting point is starts off fraudently, then the balance often goes down hill.

Second, Fair Tax does not necessarily change any state income tax, so you do not necessarily "keep EVERYTHING you make".

Third, there are a lot of assumptions about economic behavior that one has too swallow on faith to believe that a roughly 30% national sales tax will do wonders for the economy.

etc., etc. etc.

Adn there is no way that it does not devalue a Roth IRA. Currently, the qualified dollars coming out of a Roth IRA in retirement for covering expenses owe no federal income tax and no federal sales tax. Under your concept, the dollars coming out in the future will likely owe a roughly 30% sales tax when expended.